Michael Dell: Teen To Tycoon

Michael Dell: Teen To Tycoon

One afternoon in 1977, as his parents and two brothers fished in the Gulf of Mexico, 12 yr old Michael Dell sat on the beach, painstakingly putting together a trotline – a maze of ropes to which several fish hooks could be attached. “You are wasting your time”, the rest of the family called to Michael, as they pulled in fish. “Grab a pole and join in the fun”.

Michael kept working. It was dinnertime when he finished and everyone else was ready to call it a day. Still, the youngster cast the trotline far into the water anchoring it to a stick that he plunged deep in the sand.

Over dinner his family teased young Michael about coming away empty handed. But afterwards Michael rolled in his trotline and on the hooks was more fish than the other had caught all together!

Michael Dell has always been fond of saying, “If you think you have a good idea try it!” And when he was 29, he discovered the power of another good idea that helped him rise in just a few years from teen to tycoon. He has become the 4th largest manufactures of personal computers in the America and the youngest man ever to head a Fortune 500 corporation.

Growing up in Houston, Texas, Michael and his two brothers were imbued by their parents, Alexander and Lorraine, he an orthodontist, she a stockbroker with the desire to learn and the rive to work hared. Even so, stories about the middle boy began to be told early.

Like the time a saleswoman came asking to speak to Mr. Michael Dell, about his getting a high school equivalency diploma, moments later, 8 yr old Michael was explaining that it would be a good idea to get high school out of the way.

Innovative Ideas: A few years later Michael has another goal in mind, to make some smart money. A good idea was to trade stamps by advertising in stamp magazines. With the $2000 he made, he bought his first personal computer. Then he took it apart to figure out how it worked. In high school Michael had a job selling newspaper subscriptions. Newlyweds, he figured, were the best prospects, so he hired friend to coy the name and addresses of recent recipients of marriage licenses. These he entered to his computer then sent a personalized letter offering each couple a free two week subscription. This time Dell made $18,000 and bought an expensive BMW car. The car salesman was flabbergasted when the 17yr old paid in cash.

The next yr Dell enrolled at the University of Texas. Like most first year students, he needed to earn spending money. Just about everyone on campus was talking about personal computers. At the time, anyone who didn’t have a PC wanted one, but dealers were selling them as a hefty mark-up. People wanted low cost machines customer made to their needs, and these were not readily available. Why should dealer get such a big mark-up for so little value added? Dell wondered. Why not sell from the manufacturer directly to the end user?

Dell new that IBM required its dealers to take a monthly quota of PC’s, in most cases more that they could sell. He also knew that holding excess inventory was costly. So he bought dealers’ surplus stock at cost. Back in his dormitory room, he added features to improve performance. The improved models found eager buyers. Seeing the hungry market, dell placed local advertisements offering his customized computers at 15% off retail price. Soon he was selling into businesses, doctors, offices and law firms. The trunk of his car was his store: his room took an appearance of a small factory.

During holiday break, Dell’s parents told him they were concerned about his grades. “If you want to start a business, do it after you get a dress”, his father pleaded.

Dell agreed, but back in college he felt the opportunity of a life time was passing him by. I couldn’t bear to miss this chance, he says. After one month he started selling computers again- with a vengeance.

The quarters he shared with two roommates was in chaos – boxes piled high, computer boards and tools scattered all around. One day his roommates heaped all his equipment into a pile, preventing Dell from entering his room. It was time to come to grip with the magnitude of what he had created. The business was now grossing more than $50,000 a month.

Dell confessed to his parents that he was still in the computer business. They wanted to know how is classes were going.

“I have to quit college” he replied. “I want to start my own company”.

“What exactly is it that you want to do?” asked his dad.

“Compete with IBM”, he answered simply.

Compete with IBM? Now his parents were really worried. But no matter what they said Dell insisted. So they made a deal: over summer vacation he would try to launch a computer company. If he did not succeed, it would be back to university. Dell risked all his savings and incorporated Dell Computer Corp on 03.05.1984. He was 19.

Under deadline the pace was fanatic. He rented a one room office on a month to month lease and hired his first employee, a 28 yr old manager to handle finance and administration. For advertising, he grabbed an empty box and on the back sketched the first ad for Dell Computer. A friend copied it onto paper and took it to the newspaper.

Dell still specialized in direct marketing of stripped down IBM PCs to which he added custom features. As orders cam in, Dell rushed around gathering up the right parts to assemble each order:

1st month sales $180,000

2nd month Sales $ 265,000

Dell barely noticed when the new college arrived. Within a year, he was selling 1000 PCs a month.

To keep pace, Dell moved to larger quarters and hired more staff. Customers phoned orders, and then the staff assembled the units. Parts were ordered only as needed, keeping inventory and overheads low. Trucks picked up daily that day’s production for delivery. It was very efficient and very profitable.

Just when it seemed the sky was the limit, and sales had topped $ 3 million, the manager that Dell had hired quit. But as Dell always told himself, “Every time you have a crisis, something good comes out of it”. From necessity, he learned accounting basics – an experience that would prove invaluable in the years ahead.

Unlike other manufactures, Dell gave his customer money back guarantees. He also realized that when a computer is down, the customer wants it back up and working right away. So Dell guaranteed next day on sit service for his products, and introduced a 24 hr a day phone service of customers to talk directly with computer technicians. 90% of computer technical problems, according to Dell, can be solved over the phone.

Constant telephone contact with the customers kept the company close to the market. Customer let Dell computer know directly what they liked or didn’t like about a particular model. “My competitors were developing product and then telling the customers what they should want, instead of finding out what the market really wanted and then developing products.” Dell says.

By the day Michael Dell would have graduated from college, his company was selling $70 million worth of computers a year. Dell quit dealing in his improved versions of other companies products and started designing, assembling and marketing his own.

In 1994 Dell Computer had wholly owned subsidiaries in 16 countries, including Japan. The company had:

Revenues of over $2billion

Employed 5,500 people

Dell’s personal fortune over $250 million

To encourage even greater productivity, Dell Computer gives the employees awards for ideas worth trying, even if they don’t work out. “Our success has forced the giants to become more competitive”. Dell says. “That’s good for the customer”.

Dell, his wife and their 2 yr old daughter lead a pretty normal life. His charity is generous but quiet. He also regularly lectures on entrepreneurship to MBA students at the University of Texas.

Back when his firm was two people in one room, Dell told his friends his goal and dream was to become the world’s largest personal computer maker. He was unrealistic, they said.

“Why would anyone want to be second or third or tenth?” he replied. His message to the world is: hwy not at least try to realize your dream, what deep down you would truly love to achieve?